Case Law Details
CA Sandeep Kanoi
Assessing Officer added last amount of short term capital gains to the tune of Rs. 54,67,547/- under section 50 of the Act. This comprised of a sum of Rs. 4,86,650/- qua factory building and Rs. 49,80,897/- relating to plant and machinery. The assessee sold the above stated assets, reduced sale consideration against WDV of the respective block of asset resulting in surplus which in turn was further adjusted against WDV of other blocks of assets. The Assessing Officer accordingly framed a regular assessment making all above stated disallowances/additions. He initiated impugned penalty proceedings as well alleging concealment and furnishing of inaccurate particulars of income against the assessee.
The CIT(A)’s findings under challenge qua this issue read as follows:
“6.4. The last ground on which penalty has been levied relates to computation of short term capital gain. It was noted by the Assessing Officer that the assessee had sold assets falling in block of building, plant and machinery and vehicles. After reduction of sales consideration out of WDV of respective block, there was surplus of sales consideration. The assessee adjusted surplus to the WDV of other block of assets instead of showing the same as short term capital gain. He held that as per the provisions of section 50 of the Income tax Act, if sales consideration of any assets exceeds full value of the particular block; such excess amount would be short term capital gain. The assessee had adjusted WDV of other block also against the surplus amount of sales consideration of assets falling in these blocks of assets which was out of the ambit of the provisions of section 50. As the assessee could not offer any explanation in this regard, the Assessing Officer computed the short term capital gain at Rs 54,67,547/-.
6.4.1 The appellant has submitted during the course of appellant proceedings that this was a mistake while computing the short term capital gains. It is not a case of suppression of short term capital gains but a bonafide mistake which had kept in while preparing the return of income.
6.4.2 I have considered the appellant’s submission. The computation made by the appellant of short term capital gain is legally unjustified and not tenable. The correct facts came to notice only after the A.O. verified the facts. The appellant on its own did nothing to bring to light this alleged mistake. The appellant had also not been able to explain as to under what circumstances and due to whose fault the short term capital game was not shown in the return of income. Under such circumstances, the levy of penalty by the AO on this amount is correct.
6.4.3 On the basis of above facts, it is evident that the appellant had not shown the correct short term capital gains by filing inaccurate particulars. The appellant has not filed any explanation as to why such types of claims were made by it in its return of income except claiming that it was a mistake. Hence, the penalty imposed by A.O. u/s 271(1)(c) is correct. This is as per the ratio laid down in the following decisions:
(a) Decision of Hon’ble Delhi High Court in the case of Zoom Communication Pvt. Ltd. [191 Taxman 179(Delhi)]
(b) Decision of ITAT, Ahmedabad in the case of Gujarat State Finance Corporation Ltd 39 SOT 570(AHD).
In both the decisions, it has been held that when an appellant makes a legally untenable and wholly unsustainable claim in its return of income, then, penalty u/s 271(l)(c) can be imposed.
6.4.4 Hon’ble Delhi High Court in the case of Zoom Communications Pvt Ltd. reported in 191 Taxman 179 (Delhi) has held that the ratio of Hon’ble SC decision in the case of Reliance Petroproducts Pvt Ltd. is not applicable in the present type of cases. The Hon’ble HC has held as follows:
“19. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the appellant, but it cannot be disputed that the claim made by the appellant needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to sect/on 271(1) would come into play and work to the disadvantage of the appellant.
20. The Court cannot overlook the fact that only a small percentage of the Income-tax Returns are picked up for scrutiny, If the appellant makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(l)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the appellant would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to unscrupulous appellants to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self- assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them”
6.4.5 Similarly Hon’ble Ahmadabad ITTA in its decision in the case of Gujarat State Financial Corporation (Supra) has held as follows: “5.2 As is evident from the aforesaid clause (c) of sect/on 271(1) of the Act, the words used are ‘has concealed the particulars of his income’ or furnished jrate particulars of such income’. Thus, both in case of concealment and inaccuracy, the phrase ‘particulars of income’ has been used. The Legislature has not used the words ‘concealed his income’. From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words ‘particulars of income’ refer to the facts which lead to the correct computation of income in accordance with the provisions of the Act. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate then the appellant would be liable to penalty under section 271(1)(c) of the Act. In the instant case, the Id, CIT(A) upheld the levy of penalty under section 271(1)(c) of the Act since the appellant furnished inaccurate particulars of the income by claiming provision for bad debts and provision for diminution of investments in violation of provisions of the Act. Rather the provisions of the Act expressly debar deduction of such provision for bad debts and provision for diminution of investments. The expression ‘has concealed the particulars of income’ and ‘has furnished inaccurate particulars of income’ have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word “conceal” means : “to hide or keep secret. The word ‘conceal’ is con+ce/are which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities.” In Webster’s Dictionary, “inaccurate” has been defined as : “not accurate, not exact or correct; not according to truth; erroneous ; as an inaccurate statement, copy or transcript.”
5.3 If the disclosure of facts is incorrect or false to the knowledge of the appellant and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penaltyunder section 271(1)(c) of the Act is leviable if the Assessing Officer is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. Here we may point out that the decisions relied upon by the appellant on the issue of recording of satisfaction by the Assessing Officer before initiating penalty proceedings under section 271(1)(c) of the Act are no longer relevant in view of sub-section (IB) inserted in section 271 of the Act by Finance Act, 2008. The said provision purports to create a fiction by which satisfaction of the Assessing Officer is deemed to have been recorded in cases where an addition or disallowance is made by the Assessing Officer and a direction for initiation of penalty proceedings is issued. The said provision is made effective retrospectively with effect from 1-4-1989. The Id, AR on behalf of the appellant has not explained as to how the decisions relied upon by him regarding recording of satisfaction were relevant in view of the said provisions of section 271(1B) of the Act.
It is well established that so long as the appellant has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is not sustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even ‘if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come into play and the appellant will be liable to for the prescribed penalty. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the appellant, but it cannot be disputed that the claim made by the appellant needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1) comes into play and work to the disadvantage of the appellant. In the present case, despite the fact that provision for bad and doubtful debts was expressly made not deductible in is of the relevant provisions of section 36(1)(vii) of the Act, the appellant claimed the deduction, even when the amount had not been written off. We cannot overlook the fact that only a small percentage of the Income-tax Returns are picked up for scrutiny. If the appellant makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act. If we take the view, that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the appellant would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to unscrupulous appellants to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for rutiny and they would be assessed on the basis of self assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by an intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. We find that the appellant before us did not explain either to the Assessing Officer/Id. CIT(A) and even to us as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added back, while computing the income of the appellant company. We cannot ignore the fact that the appellant is a company which is having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details/explanation from the appellant, we fail to appreciate how such deductions could have been left out computing the income of the appellant company and how it could also have escaped the attention of the auditors of, especially when the deduction for provision for bad and doubtful debts and provisions for diminution in value if investments were claimed in flagrant violation of provisions of law. In these circumstances, especially when explanation given by the appellant during the penalty proceedings has not been substantiated nor found to be bona fide and there is no material before us to take a different view in the matter, we are of the opinion that the Id, CIT(A) was justified in upholding the levy of penalty on account of furnishing of inaccurate particulars of income in relation to provision for bad and doubtful debts and provision for diminution in the value of investments. In terms of provisions of section 271(1)(c) of the Act read with Explanation 1 thereto and the judicial pronouncements in the case of B.A, Balasubramaniam & Bros. Co. v. CIT [1999] 236 ITR 977 (SC), CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529 (Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC); CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC); Add/. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC) and K.P. Madhusudanan v. CIT [2001] 251 ITR 99 (SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The Explanation 1 to section 271(1)(c) of the Act raises a presumption that can be rebutted by the appellant with reference to facts of the case. Thus, the onus is on the appellant to rebut the inference of concealment. The absence of explanation itself would attract penalty. The explanation offered by the appellant should not be false. The onus laid down upon the appellant to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. Since the appellant failed to substantiate their explanation in respect of amount in relation to disallowance on account of provision for bad and doubtful debts – Rs 1,62,81,557 and provision for diminution in value of investments–Rs. 21,98,638, the onus laid down upon the appellant in terms of Explanation 1(B) to section 271(1)(c) of the Act remains un-discharged. The appellant neither substantiated his explanation nor proved that such an explanation is bona fide before the lower authorities. Thus, it cannot be said that in such a case, there could be no scope for saying that the appellant is guilty of furnishing of inaccurate particulars of income, warranting penalty under section 271(1)(c) of the Act. Even if the Assessing Officer/CIT(A) have not specifically invoked the Explanation 1 to section 271(1)(c), it had to be considered at the appellate stage in view of decision of Hon’ble Bombay High Court in CIT v. SMJ Builders [2003] 262 ITR 60 and of Hon’ble Apex Court in K.P. Madhusudanan’s case (supra). There is no discretion on the Assessing Officer as to whether he can invoke the explanation or not. We agree with the findings of the Id. CIT(A) that there is no material in support of the claim for deduction of ,the aforesaid provisions or for not adding back the provisions, debited to profit and loss account while preparing the statement of total income.”
7. On the basis of above discussion, the penalty levied by the AO on account of addition of short term capital gain is upheld.”
We have given our thoughtful consideration to the assessee’s argument that its computation of short term capital gains is an arithmetic mistake. It has come on record that assessee sold its fixed assets in question, adjusted sale consideration thereof against WDV of the concerned block resulting in surplus which was further adjusted against WDV of the other block of assets. Needless to say, this latter course of action is nowhere prescribed in the Act. Therefore, we observe that the same is much more than an arithmetical mistake being in the nature of raising altogether a false claim. We accordingly agree with the CIT(A)’s findings relying upon hon’ble Delhi High Court decision in case of Zoon Communication and that of the tribunal in Gujarat State Finance Corporation Ltd (supra). The assessee’s third substantive ground in its cross objection fails accordingly. The Revenue’s appeal ITA 48/Ahd/2012 is dismissed and assessee’s CO 60/Ahd/2012 is partly allowed.
We come to assessment year 2005-06 involving Revenue’s appeal ITA 455/Ahd/2012 challenging the CIT(A)’s deleting section 40A(2)(b) disallowance of Rs. 27,74,371/- by holding assessee’s sale made to its associate concern as under invoiced to the above stated extent. It is held in the lower appellate order that this statutory provision applies to an expenditure claim and not that of an income as held in the case law of United Exports vs. CIT (2010) 229 CTR 93 (Del) and ACIT vs. Grand Prix Fab Pvt Ltd. (2010) 128 TTJ 60 (Del). The Revenue fails to controvert this legal proposition in the course of hearing. Its sole substantive ground is accordingly rejected.
